CHICAGO–An outdated and inefficient state regulatory system unnecessarily raises U.S. insurance costs while discouraging domestic and foreign carriers' capacity growth, an industry leader told global insurance executives here.

“Our 50-state regulatory structure is costly, highly inefficient and frankly is an anachronism as well as a trade barrier,” keeping new capacity out of the U.S. market, said Evan Greenberg, president and chief executive officer of ACE, Ltd. in Bermuda.

Mr. Greenberg, who spoke on a panel during the International Insurance Society's annual seminar, was one of several industry leaders who ripped apart the state regulatory system during the conference. Such comments drew a spirited rebuttal from one of the state regulators here.

In Mr. Greenberg's view, “Considering the time and cost it takes to get something done, the industry has outgrown the U.S. regulatory system.”

Edmund Kelly, chairman, president and chief executive officer of Boston-based Liberty Mutual Group, added that especially in states where regulators are elected, “their focus by nature is local. They do what they have to do to get re-elected, and they don't pay all that much attention to global issues.”

He also agreed with Mr. Greenberg that insurance regulation is an international trade issue. “Our trade negotiators have to talk out of both sides of their mouths on insurance,” he said. “We're pressing other countries such as China to allow our insurers to write in every one of their cities, under one set of rules, but we don't allow any foreign carriers–or even our domestic insurers–to do that here in our own country.”

Later on, in a separate panel on regulation, moderator Ernie Csiszar, president and CEO of the Property Casualty Insurers Association of America (PCI) and a former president of the National Association of Insurance Commissioners, raised that contradiction directly with the current NAIC president, Maine Superintendent Alessandro Iuppa. “Should China, with its 40 provinces, have a regulator for each, like we have here in the U.S.?” he asked.

Mr. Iuppa declined to answer directly, responding with a laugh that he did not think it appropriate “to interfere in the internal affairs of China.”

Mr. Greenberg said the inefficiency of the current regulatory system and the snail's pace in attempting to reform it has convinced his company to strongly support optional federal charter legislation being debated in Congress. “Next to terrorism coverage, it's the most important priority on the industry's legislative agenda today,” he said.

Mr. Kelly noted that while “Liberty Mutual has traditionally been a supporter of state regulation, the lack of regulatory leadership at the national level on crucial national issues such as terrorism coverage and free trade in services” has put the industry at a disadvantage, both in Washington and in the global economy.

Mr. Greenberg reiterated this point, contending that the fragmented U.S. oversight system has weakened this country's influence in negotiations to lower global insurance trade barriers and achieve regulatory harmonization.

Calling for more reciprocity–not only among U.S. states but individual countries–Mr. Greenberg said that “if a jurisdiction meets minimal regulatory standards for solvency and governance, their regulatory decisions should be accepted everywhere.”

“That doesn't mean the local regulator doesn't have a role,” he added, citing market conduct as one appropriate duty for state insurance commissioners.

Mr. Greenberg also said that more vigorous demands from rating agencies and independent auditors working under more stringent accounting standards “have become de facto national regulators today,” in some ways supplanting rather than merely supplementing state insurance commissioners because their decisions have national and even international ramifications.

In the second IIS panel on regulation, Mr. Iuppa said U.S. regulators have “actively engaged” their global counterparts on reconciling conflicting regulatory demands, noting that he chairs the executive committee of the International Association of Insurance Supervisors. Indeed, he added, “I shudder to think about what our differences would be like if we didn't meet as often as we do and have an ongoing dialogue to harmonize regulations.”

Another member of the regulatory panel, Alabama Insurance Commissioner Walter Bell–in line to become the NAIC's next president–had little patience for attacks on the effectiveness of the U.S. oversight system, or for suggestions that states should bow to industry and global pressure to surrender their regulatory prerogatives.

“Many states beyond the obvious ones, such as California and New York, are bigger jurisdictions than many of the countries we're dealing with,” he said.

“I came up from this industry,” added Mr. Bell, a former vice president of diversity marketing at MONY Group, a New York-based life insurer. “While we need a harmonized system, no regulation I know of has stopped anyone from coming in and doing business in the U.S.” He also noted that “I get 30,000 consumer complaint calls a year, and I don't recall any of them complaining about overregulation.”

However, Mr. Bell did concede “there are federal tools we could use without preempting local regulation,” perhaps referring to the proposed State Modernization and Regulatory Transparency Act, better known as SMART, which would set federal standards for state insurance regulators to follow.

Mr. Csiszar, at a press conference between the two panels, said that while there are “pros and cons” in adopting an optional federal charter program, such a radical move might be necessary.

“Having been a state regulator, I have a natural fear of federal bureaucracy. In my heart of hearts, I want the state system to reform itself,” he said.

However, he added, “there is a siren song for an optional federal charter, and given we have a state system that could possibly work but is not working and shows no sign of being able to reform itself, I can't blame those who are tempted to follow that siren song.”

Special Reports /

Top Insurance Execs Blast State Regulation

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